Auto Financing In Pakistan 5t2gw

AUTO FINANCE Marketing of banking products & services

GROUP

M.FURQAN YOUNAS MUHAMMAD AHMAD JUNAID ALI SULERI NABEEL TAJ GHORI

M10MBA007 M10MBA022 M10MBA006 M10MBA027

INTRODUCTION • Auto finance arose because the price of cars was out of the reach of individual purchasers without borrowing the money. • The funding for personal car finance is provided either by a retail bank or a specialist car financing company. • Some car manufacturers own their own car financing arms, Such as ford with the ford motor credit company

DEFINITION • The financier finances for acquisition of vehicle while payment is to be made in equal installments comprising of both principle and interest of the period for which a vehicle is financed.

TYPES OF AUTO FIANANCE • For individual customers

• For Business Sectors

TO TAKE DECTSION OF GRANTING AUTO FINACCE

DECISION MAKING FOR GRANTING AUTO FINANCE ARE YOU

GET

TO MAKE YOUR DECISION

FOR FINANCING

DECISION MAKING FOR GRANTING AUTO FINANCE STEP 1:

Have some knowledge about customer’s budget

ARE YOU

Item INCOME EXPENSES Rent Utilities Transportation Food Medical expenses Clothing Leisure activities Miscellaneous TOTAL SAVINGS

Amount $1,500 $600 $75 $260 $275 $35 $75 $80 $50 $1,450 $50

DECISION MAKING FOR GRANTING AUTO FINANCE STEP 2: Setting a down payment Down Payment ARE YOU

= Monthly Payments

DECISION MAKING FOR GRANTING AUTO FINANCE STEP 3: Know customers Credit Conditions & documentation

•Credit information •Public Record information •Credit Inquiries •Personal Information

MUHAMMAD FURQAN YOUNAS M10MBA007

RULES AND REGULATIONS FOR BANKS

SECURITY ARRANGEMENTS BY BANK

• The vehicles financed by the banks shall be properly secured by way of hypothecation. • Payments against the sale orders will directly be made to the manufacturer/authorized dealer by the bank • Upon delivery, the vehicle will immediately be hypothecated to the bank

DOWN PAYMENTS & MAXIMUM PRICE FINANCED Down payment does not fall below 10% of the value of vehicle. • Further, banks shall extend auto loans only for the ex-factory tax paid price fixed by the car manufacturers. • In other words, banks cannot finance the charged by the dealers and/or investors over and above the ex-factory tax paid price of cars.

INSURANCE COVER FOR VEHICLE FINANCED • The bank shall ensure that the vehicle remains properly insured at all times during the tenure of the loan. • However, where the bank holds 100% provision against such loan bank may not obtain insurance cover for the vehicle for remaining tenure of the loan.

REPOSSESSION OF VEHICLE

• The clause of repossession in case of default should be clearly stated in the loan agreement mentioning specific default period after which the repossession can be Initiated. • The repossession expenses charged to the borrower shall not be more than actual incurred by the bank.

FACTORS TO BE KEPT IN MIND BY CUSTOMERS

FACTORS TO BE IN MIND

• • • • • •

Your target monthly payments Loan term Market Finance rates Down Payment Insurance Cover Hidden Charges

DOCCUMETS REQUIRED  FOR BUSINESS PERSONS : • Copy of CNIC. • Two recent port size colored photographs. • Last six months Bank statement(s). • Residential utility bills (as a proof of residence). • Business proof required. • Copy of valid driving license (optional). • Two references. • Bank’s Signature Verification form.

DOCCUMENTS REQUIRED • • • • • • • • •

FOR SALARIED PERSONS & SELF EMPLOYED: Copy of CNIC. Two recent port size colored photographs. Last six months Bank statement(s). Recent salary slip. Employment certificate. Residential utility bills (as a proof of residence). Copy of valid driving license (optional). Two references. Bank’s Signature Verification form

JUNAID ALI SULERI M10MBA006

AUTO FINANCE CALCULATOR

AUTO FINANCE CALCULATOR

BENEFITS OF AUTO FINANCE FOR CUSTOMERS

BENEFITS • SHIFT OF BURDEN : •

An auto loan will give you the advantage of buying a vehicle with monthly payments you can afford. • TO BUILD CREDIT RATING : Auto loans also help build your credit rating, provided that you make the payments on time, • THE OPPORTUNITY TO BUY A BETTER VEHICLE : that may have been too expensive if you were to pay cash. BENEFITS OF INSURANCE CLAINS: Insurance company will cover the damages under motor insurance and liability insurance covers

DISADVANTAGES AUTO FINANCE FOR CUSTOMERS

DISADVANTAGES • PAYING INTEREST : • Auto loan requires the customer to pay interest in addition to the principal, effectively raising the total cost of the car above the sticker price. • Your interest rate will depend on a number of factors, such as • Your credit history, • The lending institution • Economic conditions

DISADVANTAGES • FINANCIAL IMPLICATIONS:

• Financing a vehicle can make it easy to bite off more. You might rationalize the higher monthly payment at the time by deciding to cut back on saving and investing.

DISADVANTAGES • HIGHER LIABILITY :

• When you finance a vehicle, you're probably buying a brand-new or late-model used vehicle with a relatively high value, so your auto insurance s may also be higher. • You have to carry higher liability and physical damage coverage than you normally would to protect its interests.

ADVANTAGES AND DISADVANTAGES FOR BANK

ADVANTAGES AND DISADVANTAGES FOR BANK ADVANTAGES :

SOURCE OF EARNING • RELATIONSHIP MAKING WITH VALUED CUSTOMERS

DISADVANTAGES :

• WAITING FOR PAYBACK OF LOAN • RISK OF DEFAULT BY CUSTOMER • REPOSSESSION PROCEDURES

NABEEL TAJ GHOURI M10MBA027

AUTO FINANCE IN PAKISTAN

BY COMMERCIAL BANKS • Following major banks are involved in auto finance • • • • • • • •

HBL UBL MCB NIB BANK CITI BANK BANK AL HABIB SUMMIT BANK BANK ALFALAH

ISLAMIC AUTO FINANCE • IJARAH :

It is a rental agreement, under which the usufructs of an asset is transferred to the client on pre-agreed and conditions. It is a Shariah Compliant mode of finance, adopted by Islamic Banking system in Pakistan.

ISLAMIC AUTO FINANCE • Following banks are offering islamic auto finance: • Dubai islamic bank • Meezan bank • Askari bank • Bank Alfalah

DIFFERENCE BETWEEN CONVENTIONAL CAR FINANCING & IJARAH

CONVENTIONAL CAR FINANCE VS IJARAH BASIS

CONVENTIONAL

ISLAMIC

Primary differences

Financing

leasing

installments

rentals

Purchase in the name of buyer

Purchase in the name of bank

Transfer of risk

Risk retained by bank

Down payment

Security deposit

Differences in scheme

No Option of returning the Option of return is there vehicle Insurance

Under insurance act 1938

Under Takaful

CONCLUSION It has opened new door for the banking sector to expand its business as well as expansion of the business of the automobile industry. Moreover customers can get their desired automobiles in a convenient manner which facilitates cash flow management and tax advantages .